Monday, Nov 30, 2009

QE straw man; credit balloon keeps deflating but hp keep rising somehow

FT: Money supply and bank lending fall

"Key measures of money supply and bank lending both fell in October, raising further questions about the effectiveness of the Bank of England’s £200bn programme to pump cash into the economy."
AND tucked away at the end of the article: "Mortgage approvals rose again, to 57,345 from 56,205. Approvals have now more than doubled since their low last November but remain well below their pre-crisis average of about 100,000 per month. Analysts have been surprised by the ability of house prices to recover in spite of the lower level of mortgage credit available, but frequently point to a shortage of homes on the market at the moment." Yes it is surprising that house prices can still rise under these conditions.

Posted by mountain goat @ 01:39 PM (2858 views)
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22 Comments

1. tpbeta said...

This constant 'printy printy' assumption that Quantitative Easing is effective (and therefore dangerous and inflationary) bugs the hell out of me. All the evidence is that it doesn't work outside of a very limited sphere of sentiment based effects on the currency and the stock market, and is therefore deflationary, since it substitutes for effective solutions.

Monday, November 30, 2009 01:45PM Report Comment
 

2. Shawkie said...

I think the argument about QE being inflationary or not all depends on whether you believe that credit is real money or not. If you do then its the credit expansion thats inflationary rather than the QE. If, like me, you believe that credit expansion isn't inflationary and that all of the bad debts arising from it should be borne by those that issued them then clearly QE is inflationary. If you believe the former then effectively you are saying that the right to create money belongs with the private banking industry rather than with the Bank of England.

Monday, November 30, 2009 02:21PM Report Comment
 

3. mountain goat said...

tpbeta - it's not so simples is it

Monday, November 30, 2009 02:54PM Report Comment
 

4. hpwatcher said...

Low interest rates, may have something to do with it, but where is the money coming from to maintain this artificial state of affairs?

Monday, November 30, 2009 03:03PM Report Comment
 

5. mark wadsworth said...

That does not surprise me one bit. Mountain Goat, it is that simple, this is a paper shuffling exercise in a closed loop between the commercial banks and two departments of HM Treasury (the Bank of England and the Debt Management Office).

I've been trying to tell you so all along.

Monday, November 30, 2009 03:04PM Report Comment
 

6. mountain goat said...

MW - I've been agreeing with all along!

Monday, November 30, 2009 03:11PM Report Comment
 

7. mountain goat said...

at least on this subject!

Monday, November 30, 2009 03:11PM Report Comment
 

8. letthemfall said...

Not entirely a closed loop. It has kept asset prices up, particularly bonds, all of which have an effect on long rates and cash available for lending. It seems that this has had anough impact to stop house prices dropping further, when we all agree they are still at fantasy values. But this cannot continue indefinitely, though I wouldn't want to guess how long.

Monday, November 30, 2009 03:55PM Report Comment
 

9. jack c said...

There's an old saying - "markets act irrationally"

UK residential house prices will correct - the highly difficult bit is predicting precisely when.

Monday, November 30, 2009 04:10PM Report Comment
 

10. hpwatcher said...

UK residential house prices will correct - the highly difficult bit is predicting precisely when.

The indications are that it will be later rather than sooner......this country - the government, BOE and politicians - are simply unable to face the pain. I think outside forces will have to do it.....

Monday, November 30, 2009 04:29PM Report Comment
 

11. jack c said...

hpwatcher - agreed, true market forces will come into play - keep an eye on the gilts market.

blogs.telegraph.co.uk/finance/edmundconway/100002346/the-leaks-that-prove-how-worried-the-treasury-is/

Monday, November 30, 2009 04:49PM Report Comment
 

12. mountain goat said...

UK bank adventures into Dubai and elsewhere should keep domestic lending constrained for some time.

Monday, November 30, 2009 04:57PM Report Comment
 

13. hpwatcher said...

hpwatcher - agreed, true market forces will come into play - keep an eye on the gilts market.

blogs.telegraph.co.uk/finance/edmundconway/100002346/the-leaks-that-prove-how-worried-the-treasury-is/


I wonder how long before open warfare...as this irresponsible and incompetent government tries to cling to power?

Can't be long before.....

Monday, November 30, 2009 05:15PM Report Comment
 

14. matt_the_hat said...

nominal house prices won't drop but we will look back at the 'real' crash in twenty years time (sterling 30% down against the euro)

Monday, November 30, 2009 05:37PM Report Comment
 

15. Davepage said...

Low interest rates, may have something to do with it, but where is the money coming from to maintain this artificial state of affairs?


It's coming from the saver, whose loss of return is fueling the mortgage spend via depressed interest rates -- I'm £800 / month worse-off as a consequence (that investment is money saved by hard work, not the windfall of selling-to-rent, I might add...)

Monday, November 30, 2009 05:49PM Report Comment
 

16. braindeed said...

There's not just a shortage of homes, there’s no FTB's and movers are generally well set in life.
And don’t mind paying what they see as a market rate. People are still letting, waiting for a return to normalcy - the huge rise in the stock market is underpinning buoyancy too - much more so in the areas of the market that are active (high end).
Seems to me that the two major parties have nailed their colours to the flagpole of re-inflating the balloon …….you can’t piss off the 70% who own their own homes, and love being ‘rich’.
HPC? – call me a bull.

Monday, November 30, 2009 05:56PM Report Comment
 

17. hpwatcher said...

There's not just a shortage of homes, there’s no FTB's and movers are generally well set in life.
And don’t mind paying what they see as a market rate. People are still letting, waiting for a return to normalcy - the huge rise in the stock market is underpinning buoyancy too - much more so in the areas of the market that are active (high end).
Seems to me that the two major parties have nailed their colours to the flagpole of re-inflating the balloon …….you can’t piss off the 70% who own their own homes, and love being ‘rich’.
HPC? – call me a bull.


Yes, they are all quite happy to destroy the currency in the process of keeping house prices high.

Mind you, take that away, and ALL the Banks are VERY DEFINITELY BUST!!!!

Monday, November 30, 2009 06:03PM Report Comment
 

18. str 2007 said...

Jack C at 4.10pm

I think the actual quote is ''Markets can remain irrational longer than you can stay solvent'.

There's a thought.

Monday, November 30, 2009 06:07PM Report Comment
 

19. tenyearstogetmymoneyback said...

Quoting the article "Mervyn King, the governor of the Bank, has said that he would like to see the money supply growing at a similar pace to the 6-9 per cent rate it was before the financial crisis"

Could any economists out there explain why the money supply needs to grow by this rate
when inflation should be held under 2%. What are they expecting people to do ?
Buy a new car every month ?

Monday, November 30, 2009 09:02PM Report Comment
 

20. stillthinking said...

matt_the_hat has a good point. This is like the eye of the hurricane (calm).

Monday, November 30, 2009 10:12PM Report Comment
 

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